Burden of Proof in Insurance Litigation

By Alistair Beaumont, Partner in the Litigation department at Shepstone & Wylie Attorneys

The Supreme Court of Appeal (“SCA”) judgment of Renasa Insurance Company Limited v Watson handed down on the 11th of March 2016 dealt with an alleged fraudulent claim of arson and the onus on the insurer to prove that the insured was the arsonist and that he failed to take reasonable steps and precautions to prevent the loss.

Facts of the case

A fire erupted on 10 January 2011 in industrial premises owned by Flashcor 201 CC (“Flashcor”), which was let to the first respondent (“Watson”). Renasa Insurance Company Ltd (“Renasa”) had insured Watson and Flashcor from 1 October 2007 under a short-term insurance policy against loss or damage caused by fire (among other things). In terms of the most recent policy renewal in 20 October 2010, Renasa had indemnified Watson as the sole proprietor of Cantebury Coaters against the loss or damage of the plant, machinery and stock suffered as a consequence of fire for an agreed sum of R17 545 871. Renasa had also insured Flashcor against loss or damage to the buildings on the premises as a consequence of fire for R640 001.91.

Watson and Flashcore lodged claims with Renansa pursuant to the fire which Renasa repudiated. Its Repudiation of the claims under the policy and its legal defence was based on two provisions in the insurance policy, clauses 8 and 5 which provided that:

“If any claim under this policy is in any respect fraudulent or if any fraudulent means or devices are used by the insured or anyone acting on their behalf or with their knowledge or consent to obtain any benefit under this policy or if any event is occasioned by the wilful act or with the connivance of the insured, the benefit afforded under this policy in respect of any such claims shall be forfeited.”

Clause 5 stated:

“The insured shall take all reasonable steps and precautions to prevent accidents or losses.”

In its pleadings (papers before court), Renasa alleged that Watson and / or those instructed by him ignited the fire. Renasa also alleged a number of steps that Watson and Flashcor ought to have taken to prevent or avoid fire, including not leaving the property unattended, ensuring that the accelerants deployed were not ignited and securing the property to prevent access by an intruder.

According to Watson, he had entered the premises early in the morning in his Audi to meet the employees when they arrived for work, only to find the CCTV and alarm disabled, the electricity supply cut and a carefully constructed arson scene with a number of plastic drums filled with petrol and suspended from cable trays above the various machinery. Watson called the police who then arrived. The police took no steps to secure the scene when they left the premises, nor did they ask Watson to arrange for private security to secure the scene. Watson followed the police to the police station and then returned to the premises to wait for the one employee the company had not been able to contact to inform him that work was cancelled for the day. After doing this, Watson left the premises to go and visit friends in Claremont (they testified to this). It was here that he received the phone call that the premises were on fire. By the time Watson arrived, the fire had been put out by the fire department.

Warrant Officer Nimb of the SAPS was of the opinion that someone gained access to the scene with keys and that the motive was arson. He couldn’t say whether or not the fires were started manually or by a delay device. It was common cause between the parties in this case that the fire was a result of arson. Renasa set out to prove, through their witnesses, that Watson was the arsonist.

The Court’s judgment:

Proving that Watson was the arsonist involved establishing how, on the probabilities; Watson would have initiated the fire. Fourie AJA stated that:

“As to the balancing of probabilities, I agree with the remarks of Selke J in Govan v Skidmore 1952…in finding facts or making inferences in a civil case, it seems to me that one may, as Wigmore conveys in his work on Evidence…by balancing probabilities select a conclusion which seems to be the more natural, or plausible, conclusion from amongst several conceivable ones, even though that conclusion be not the only reasonable one.”

The SCA highlighted the fact that that Renasa’s witnesses (only one being a fire expert) were unable to provide any clarity as to how the fire started, and in particular, whether it was started manually or by means of some delay device. The Court also highlighted that it was never put to Watson how he is alleged to have started the fire or when he is alleged to have ignited the fire. Fourie AJA stated that:

“Renasa was also faced with the improbability as to why, if Watson was the arsonist who had carefully prepared the scene and was ready to set the tinderbox alight, he would summon the police thereby thwarting his intention to burn down the factory.”

The Court further pointed out the strange conduct on the part of Watson, if he was the arsonist, to park his Audi in the building with the intention of having it destroyed by the fire, as well as Ms D Ladopoulos’s (an accountant who testified on behalf of Renasa) financial evidence, which as a whole did not justified the bleak prognosis she gave to Watson’s business. Ladopoulus, herself, conceded during cross-examination that there were no indications of commercial insolvency on the part of Watson at the time of the fire. In the Court’s view, the financial evidence presented by Renasa fell well short of proof that Watson had a motive to burn the factory down due to the precarious financial position of the business.

The Court found that there was simply no evidence (whether direct or circumstantial or any other probative material) as to how the fire started (the source of the ignition); where the fire started (the point(s) of ignition or fire origin) and at what time it ignited, and in the absence of this proof, the SCA found that the court a quo correctly held that Renasa had not discharged the onus of showing that Watson deliberately set fire to the premises, or that others with his knowledge or consent did so.

Turning to Renasa’s alternative defence based on clause 5 of the insurance policy. In dealing with this issue, the court a quo had relied on Santam Limited v

CC Designing CC and concluded that a clause of this nature should not be construed as an exclusion of liability where the loss was caused. The SCA, however, stated that it was not necessary to consider this case, for, having regard to the wording of clause 5, it is clear that to require an insured to take steps to prevent a loss, proof of foreseeability of loss eventuating is required i.e.: a reasonable person in the position of the insured would have foreseen the reasonable possibility of the loss eventuating and would therefore have taken reasonable steps to prevent same. It became common cause “that a reasonable person in the position of Watson would not have foreseen, as a reasonable possibility, that an unknown arsonist would have attempted to manually ignite the fire after Watson’s departure from the premises. It accordingly follows that a reasonable person would not have foreseen, as a reasonable possibility, that his or her conduct in leaving the premises unattended during this period, would cause loss to eventuate by virtue of the fire being ignited manually by an unknown arsonist.”

The Court stated that Watson could hardly have been required to take steps to guard against loss caused by an eventuality, which was inconceivable and they therefore concluded that Renasa’s alternative defence also had to fail.